Student Loan Borrowers Are Reporting Huge Spikes In Monthly Payments As Repayment System Buckles

Student loan borrowers are starting to see dramatic increases in their monthly payments, as the Department of Education and its contracted loan servicers struggle to operate a repayment system impeded by court orders and staff reductions. The issues may also derail borrowers who are pursuing student loan forgiveness.

Last month, a federal appeals court issued a ruling broadening an existing injunction that has blocked the SAVE plan, a Biden-era income-driven repayment program, since August. In response to that ruling, the Trump administration quickly cut off access to all income-driven repayment plans (including plans not directly subject to the injunction) by removing the online and paper applications and ordering student loan servicers to halt all processing of existing applications. Income-driven repayment programs are plans authorized by Congress to provide affordable monthly payments to borrowers, with a pathway to eventual student loan forgiveness.

Then, earlier this week, the department announced mass layoffs, cutting its staff by nearly 50%. The staff cuts have hit every unit and division within the Department of Education, including borrower services and stakeholder communications, leaving student loan borrowers in the dark about what is happening.

Now, student loan borrowers are beginning to report significant spikes in their monthly payments as access to affordable repayment plans remains cut off. Here’s what’s happening.

Department Of Education Removed Access To Affordable Payments, Student Loan Forgiveness Plans

The Department of Education blocked access to income-driven repayment plans after the 8th Circuit Court of Appeals issued a new ruling last month that reaffirmed and broadened an existing injunction blocking the Biden-era SAVE plan, one of four current income-driven repayment options. This effectively keeps millions of student loan borrowers who had enrolled in SAVE stuck in a forbearance. The forbearance pauses payments and sets interest to zero, but the period does not count toward student loan forgiveness, including for Public Service Loan Forgiveness, or PSLF – a popular program for borrowers working in nonprofit or government settings.

The court also called into question the legality of student loan forgiveness at the end of the 20 or 25 year repayment term for the ICR and PAYE plans, two older income-driven repayment plans that were created under the same legal authority as SAVE. But the court did not explicitly bar access to these two plans or stop the department from continuing to accept payments under the plans. And the court expressly left untouched the IBR plan, a separate income-driven repayment option created by Congress in 2007, as well as PSLF. Payments made under any of the four income-driven plans can count as qualifying payments toward PSLF, provided all other program criteria are being met (including working in eligible nonprofit or government employment).

But in response to the order, the Department of Education took down the income-driven repayment applications and halted all processing of existing borrower requests. The department has provided no official public explanation, but it could be related to the department’s need to update internal systems or the application itself to comply with the court’s new order. Because the department uses a combined application for all four income-driven plans, all plans are being impacted, even though the injunction primarily affects only the SAVE plan and student loan forgiveness as the end of the repayment term for the ICR and PAYE plans.

Borrowers Who Must Recertify Their Income See Spike In Payments And Are Cut Off From Student Loan Forgiveness

Many borrowers who are stuck in the SAVE plan forbearance and are pursuing student loan forgiveness, whether through income-driven plans or via PSLF, have been trying to switch to a different plan so that they can resume progress. With the income-driven repayment system now down, these borrowers will get further behind on their loan forgiveness progress if they remain in a forbearance.

But now some borrowers in the other income-driven plans – ICR, IBR, and PAYE – are being directly impacted by the turmoil as they approach their annual income recertification deadlines. Typically, borrowers enrolled in an income-driven plan must update their income with their loan servicer annually, resulting in a recalculation of their monthly payment if their income has changed since the previous year. The process is called income recertification. The only way to recertify income is to complete and submit the income-driven repayment application. Since the Department of Education has removed the application and halted all processing, though, it is not currently possible to recertify income – and this can have dire consequences including higher payments, interest capitalization, and halted progress toward student loan forgiveness.

A key student loan servicing industry representative told The New York Times earlier this month that borrowers in income-driven repayment plans should not have to worry about income recertification, as loan servicers would simply push forward the annual recertification deadlines to allow time for the Department of Education to resume processing. While this appears to be happening for borrowers enrolled in the SAVE plan, it’s not happening for borrowers enrolled in one of the other income-driven repayment plans.

Some borrowers in the ICR, IBR, and PAYE plans who cannot recertify their income are now being pushed into Standard repayment plans, which can result in a significant jump in their monthly payments, sometimes to an unaffordable amount. Payments made under these plans also typically don’t count toward loan forgiveness (the exception is the 10-year Standard plan, which can count toward PSLF). If the borrower cannot afford those payment plans, they may have to go into a forbearance, during which time interest will accrue and the time still won’t count toward loan forgiveness.

One borrower enrolled in the PAYE plan who was unable to recertify her income was told by her loan servicer that her payments would increase from under $600 per month to $3,400 per month under a Standard repayment plan because she was unable to recertify her income. Her loan servicer told her if she could not afford those payments, she would have to go into a forbearance. Other borrowers are sharing their experiences on public forums.

“My mom is on IDR I think and said she’s supposed to re-certify by April 1st and has been trying to the past 2 months but is having no luck,” said one commenter on Reddit.
“She finally got through to someone on the phone and was told she would be placed in forbearance for now but accrue capital interest, or she’d have to pay the full standard amount monthly because they aren’t processing anyone’s recertification right now.”

“I’m supposed to recertify by the 10th and my monthly payments show them going up by $1000 in May,” said another commenter.

“My whole account is messed up, I wasn’t asked to recertify, clearly I couldn’t if I wanted to,” said another commenter on the thread. “Last month I owed $0 in my income driven plan, this month it shows I owe 2,411.11 due today.”

“What should we really do?” asked someone else on the thread. “This is Not our Fault but the goverment [sic]. Why should we be penalized for something they wont let us do? The lack of information and Not knowing what to do and getting off plan etc is so out of touch and nerve-racking.”

Jump In Student Loan Payments Happens As Department Of Education Implements Mass Layoffs

The issues roiling the federal student loan repayment system could not be coming at a worse time. Earlier this week, Secretary of Education Linda McMahon announced massive layoffs that would effectively cut the Department of Education’s workforce in half. The staff cuts have hit every unit within the department including borrower services, the Ombudsman group, and stakeholder communications. As a result, borrowers have no real options to dispute these issues with the department, and they cannot access up-to-date guidance on their options.

“As of December 16, 2024, borrowers may apply for the following IDR plans: Pay As You Earn (PAYE), SAVE (previously known as REPAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR), if borrowers meet any plan specific eligibility requirements,” says Department of Education guidance on the SAVE plan legal challenges that, as of this writing, is still available online, even though it is no longer accurate. “For borrowers who would prefer to make payments during this time — such as borrowers pursuing PSLF or low-income borrowers who would owe no monthly payments — enrolling in PAYE or ICR may be an option to consider.” The department has not updated the guidance since January 15 – weeks prior to the most recent court order.

In the meantime, a coalition of Democratic attorneys general has filed a lawsuit against the Trump administration, arguing that the abrupt firing of half of the Department of Education’s workforce is illegal. Given the current turmoil rocking the federal student loan system, the outcome of that legal challenge could be crucial for millions of student loan borrowers struggling with their repayment plans.